Tuesday 03 July 2018 by FIIG Research Company updates

Company updates – Axsesstoday, Firstmac, Hertz, Mackay Sugar, Transocean, Virgin, Updated DirectBonds lists

This week, research on Axsesstoday’s unsecured notes, Firstmac RMBS seen as superior, falling Hertz shares and poor performing bonds, Mackay Sugar update, Moody’s downgrades Transocean and NextDC launches new senior unsecured notes to raise AUD250m. Research initiates recommendation on Virgin 8.25% 2023 notes

Axsesstoday unsecured notes research reports

On 27 June 2018, Axsesstoday Group (Axsess) announced its intention to raise a minimum of AUD50m in ASX listed unsecured notes maturing in July 2023, paying an indicative interest rate of 4.90-5.20%pa over BBSW. A summary of the notes is available here.

We believe the proposed notes do not offer attractive relative value, particularly noting the unsecured position in a company carrying significant secured debt, the weaker covenants, and the five year bullet maturity.

Please see the full reports at the links below:

The following Axsess secured notes are available to trade for retail and wholesale clients:

  • Axsess AUD 7.50% June 2020c* bond at YTW – 6.13%pa
  • Axsess AUD BBSW+6.50% October 2020c bond at YTW – 7.06%pa

*call date

Firstmac RMBS products seen as superior

On 27 June 2018, it was reported in the AFR that residential mortgage backed securities (RMBS) issued by non bank lender Firstmac, ‘have been rated positively by independent rating agencies, as mortgage based investments make a return to the Australian market’.

The Firstmac Mortgage Funding Trust No. 4 Series 2 received an ‘AAA’ rating from S&P Global Ratings (S&P), reflecting, ‘the sound credit risk of the “closed” portfolio and strong liquidity within the portfolio’.

Read this article for S&P’s commentary on its rating rationale. Please contact your relationship manager for more information about the Firstmac securities.

Hertz and Avis shares fall on used car prices

According to Bloomberg, Hertz shares dropped as much as 12% last Tuesday and Avis shares fell to their lowest in seven months. Both companies’ stock prices have now declined more than 20% this year, and the companies’ bonds are also slumping being the worst performers in the high yield market last Tuesday.

Hertz’s 5.5 percent bonds due 2024 fell more than 2 cents and were last quoted at 80.75 cents on the dollar. Although we do not trade any Avis bonds, its 5.5 percent bonds due 2023 fell 1.375 cents to 98 cents, according to Trace data.

A Morgan Stanley analyst cautioned that, ‘a glut of used cars and sport utility vehicles will come off lease and undermine the value of the autos in their fleets.’ Competition from Uber Technologies Inc., also put additional pressure on the rental car companies.

The following Hertz bonds are available to trade for wholesale investors:

  • Hertz USD 7.625% June 2022 bond; rated ‘BB-‘ at YTW – 8.54%pa
  • Hertz USD 5.50% October 2024 bond; rated ‘B-‘ at YTW – 9.81%pa

Mackay Sugar update

Mackay Sugar Ltd (MSL) has released its July update regarding the recapitalisation process. MSL agreed to provide a formal Noteholder update on progress of the plan every two months

Given the commercial/competitive process and confidentiality restrictions, MSL remains unable to disclose any comprehensive details.

Read the full update here available to all investors.

Moody’s rates Transocean’s new secured notes and downgrades CFR

On 27 June 2018, Moody's Investors Service, (Moody's) assigned a ‘Ba3’ rating to Transocean, Inc.'s

(Transocean) new $1bn senior secured revolving credit facility and a ‘B1’ rating to Transocean Guardian

Limited's (a wholly owned indirect subsidiary of Transocean) proposed senior secured notes due 2024. The proceeds from the issuance combined with cash will be used to refinance existing debt secured by Songa Offshore SE's (Songa) Songa Encourage and Songa Enabler.

Concurrently, Moody's downgraded the following ratings:

  • Corporate family rating (CFR) to ‘B3’ from ‘B2’
  • Probability of default rating (PDR) to ‘B3-PD’ from ‘B2-PD’
  • Senior unsecured notes rating to ‘Caa2’ from ‘Caa1’
  • $1.25bn senior unsecured notes due 2023 and $750m senior unsecured notes due 2026 to ‘B3’ from ‘B1’ These two unsecured notes are guaranteed by certain Transocean subsidiaries and by Transocean's parent, Transocean Ltd.

Moody's affirmed Transocean's SGL-1 speculative grade liquidity (SGL) rating. The rating outlook remains negative.

Transocean's downgrade to a ‘B3’ CFR reflects the company's high financial leverage which could worsen unless there is a significant improvement in offshore activity. Moody's expects that, if anaemic industry conditions persist, it will result in the run off of Transocean's premium priced contracts amid a persistence of weak dayrates resulting from stagnant rig utilisation levels. The company is obligated to spend approximately $1bn in 2020 to take the delivery of two rigs under construction that currently have no contracts.

The Transocean USD 9.0% July 2023 bond rated ‘B+’ is available to wholesale investors at YTW of 6.44%pa.

NextDC launches Notes IV

On 3 July 2018, NextDC Limited (NextDC) announced the formal launch of the marketing and pricing of a new senior unsecured notes offering (Notes IV). The company is aiming to raise AUD250m, with an ability to take over subscriptions.

Notes IV is a complementary security to the AUD300m raised by the company in May 2017 (Notes III), with a similar structure, albeit a different maturity date in June 2022, compared to June 2021 for Notes III.

NextDC states it intends to use the net proceeds from the Notes IV issue for general business and financing purposes, including investment in the development of new data centre sites and the core supporting infrastructure at these sites. Additionally, the proceeds will be used to assist financing potential acquisitions currently under consideration.

The NextDC AUD 6.25% June 2021 notes mentioned above are available to wholesale clients at a yield to worst of 4.24%pa.

Virgin Australia 2023 AUD recommendation

We initiate our coverage on Virgin Australia's 8.25% notes due 2023 with a recommendation and outlook.

At the same time, we reiterate our outlook and recommendation on the company's 8.5% notes due 2019 and 7.875% notes due 2021. 

Read the full research here available to wholesale investors only.

The following Virgin bonds all rated ‘B-‘ are available to trade for wholesale investors:

  • Virgin USD 8.5% November 2019 bond at YTW – 6.66%pa
  • Virgin USD 7.875% October 2021 bond at YTW – 7.70%pa
  • Virgin AUD 8.25% May 2023 bond at YTW – 7.44%pa

Updates to the DirectBond Filter Lists - July 2018

We have updated the DirectBond Filter Lists for July 2018.

The updates for July 2018 and a complete list of DirectBonds are available at the following links:

The HCA USD 5.875% March 2022 bond is not included in the complete list, but was added as a DirectBond this week. View Factsheet 

You can find more information on the DirectBond process here or take a look at the frequently asked questions

Note the DirectBond Filter Lists and FAQs require a FIIG client login.

Please note yields are accurate as of 6 August 2018, subject to change. S&P ratings are shown.